Harley-Davidson Earnings Smash Expectations. Why the Stock Is Down.

Coming into Tuesday trading, Harley-Davidson shares were down 10% year to date and down 15% over the past 12 months. (Getty Images)

Key Points

• Harley-Davidson reported third-quarter earnings per share of $3.10 on sales of $1.3 billion, exceeding analyst expectations.
• The Harley-Davidson Financial Services unit significantly boosted profits, with operating profit rising from $77 million to $439 million.
• Despite strong overall results, motorcycle retail sales decreased by 6% year over year, and the motorcycle business operating income fell by $1 million.

Motorcycle maker Harley-Davidson delivered blowout third-quarter results—on the surface. There are still a couple of concerning items for investors, one being falling motorcycle sales.

Harley announced third-quarter earnings per share (EPS) of $3.10 from sales of $1.3 billion on Tuesday. Wall Street was looking for EPS of $1.53 from sales of $1 billion. A year ago, Harley reported EPS of 91 cents from sales of $1.2 billion.

Results look better than expected. Still, shares fell 6.5% to $25.36. The S&P 500 and Dow Jones Industrial Average dropped 1.2% and 0.5%, respectively.

“Our Q3 results demonstrate the positive impact of the [Harley-Davidson Financial Services] transaction and reinforce the strategic value HDFS brings to Harley-Davidson’s overall business model,” said CEO Artie Starrs in a news release.

In July, Harley unveiled an agreement between its financing unit, Harley-Davidson Financial Services, and KKR and PIMCO. HDFS provides loans, insurance, and other services for Harley buyers.

HDFS drove the third-quarter beat, reporting $439 million in operating profit, up from $77 million a year ago. The huge improvement was “driven by the impact of HDFS transaction,” according to Harley’s earnings release.

Operating income in the company’s motorcycle business, however, was $54 million, down $1 million year over year. And retail sales of Harley motorcycles fell 6% year over year.

“While retail sales remain challenged, I’m truly energized by what I’ve experienced across the Company, in dealerships, and with the broader rider community,” added Starrs, who started his CEO role in October. “While there is a lot of work ahead of us, our success begins with our dealers—when they thrive, Harley-Davidson thrives.”

Harley stock has struggled for a while, down roughly 20% over the past five years, falling along with sales. Harley reported 2022 sales of $4.9 billion, the highest level of the past few years. Sales in 2025 are expected to be $3.7 billion.

The stock price and sales are two key areas Starrs will need to improve.

Write to Al Root at allen.root@dowjones.com